The Walsh Street Journo- What we learnt from NeMa 2016

Temperatures were high at this year’s NeMa conference in Dubrovnik – both inside and out of the conference.

A combination of sun, sea and custody awaited attendees in Croatia where heated panels and stunning scenery made the highlights of the week.

There was a duel of words between Northern Trust’s Andrew Osborne – who called for alternatives to using sub-custodians – and Commerzbank’s Rob Scott, who argued that he had seen a resurgence in local operators.

In a city where Game of Thrones was filmed, it was the man on the iron throne – or at least the chair of the panel – John Gubert, who seemed to have the final say by claiming he couldn’t see a situation where sub-custodians would be disintermediated.

Though we are years on from the start of a tsunami of regulations that ensued from the financial crisis, the feeling of this year’s NeMa event was that we are not even on the crest of the wave.

The pressure is on and there is no sign of relief just yet, because despite the rising cost of doing business more is now expected of the custodian bank than ever before. At least that was what a panel of asset managers demanded when their time came at the event.

The asset management community brought their A-game to NeMa through a highly entertaining panel and demanded greater interaction and collaboration with custodians.

The rallying cry clearly had its desired effect as representatives from Standard Chartered, BlackRock, Franklin Templeton Investments and Capital Group influenced 61% of the audience to vote for increased collaboration between custodians in an interactive poll.

This can only mean one thing for custodians should they hear this call, extra time, resources and expertise. But this will have a cost.

Another message from the event was that custodians will have to charge more for their services in response to these demands. No longer are their offerings simple custody services, but demands around data, bespoke solutions and asset protection. Coupled with regulatory pressures which custodians face, prices will rise, and as a representative from Citi pointed out, clients will need to accept this reality as they do in any other walk of life when costs spike.

Clearly there are difficult times ahead on the custody side but fortunately there is cost-saving potential through many industry schemes such as T2S and the Capital Markets Union, along with the possible introduction of blockchain technology in the near future.

There was much talk of demand for flexibility within the industry. Custodians must realise they are no longer a one-stop shop and that clients may look to other providers for their desired services.

As expected, T2S was widely discussed at the event. After what seems to be an eternity of industry criticism ranging from unsustainable infrastructure costs to a lack of account segregation the T2S tide seemed to have turned at NeMa. Discussions around delays seems to be a thing of the past and the overwhelming T2S feedback was a positive one as the industry is now looking at recognising benefits that go beyond the ECB’s initial proposals. For example back-office systems, where savings as small as 1% can be a huge win for the industry.

Unfortunately NeMa didn’t escape talk of regulation and the upcoming CSDR rules were prominent with panels talking about the wide-ranging impact on securities lending as well as how CSD’s would change in light of the regulations.

What struck me on this topic was how the industry will never fully get to grips with any new regulation until it comes into force, as the complexities of it can never be fully understood no matter how many panels or experts offer insight on it. Then by the time you have got to grips with it, a new one is just around the corner.

At the conclusion of NeMa, the organisers offered a free snazzy t-shirt to attendees that named their four best speakers of the conference. For those who are curious, here are mine in no particular order.

• Urs Stähli- Secretary, ISSA
• Andrew Osborne, senior VP, Northern Trust
• Lisa Martinez, network specialist at The Capital Group
• Arnaud Delestienne, head of core product development at Clearstream

We also feel that we should give a mention to John Gubert- GC contributor and GC legend.